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June 2020 | Conveyancing

Tom Bessant: Pros of exchange and completion in one

Tom Bessant is partner, commercial property department at Parker Bullen

In April, Zoopla estimated that around 373,000 property transactions, with a total value of £82bn, were on hold.

Since then, the position is quite likely to have worsened, as many have become even more concerned about moving, often due to economic uncertainty.

The stark reality is that tens of thousands of homeowners have already been, or are likely to be made redundant as companies emerge from lockdown and furlough funding ceases.

The result is that many transactions will no longer go ahead, and continued uncertainty over the trajectory of the pandemic means that even the most committed buyers and sellers will be nervous of exchanging contracts.

One problem with the system of conveyancing has always been that of the ‘chain’ of transactions. It is not unusual to see chains of five or more transactions, all of which fail if just one buyer or seller drops out before exchange of contracts.

Usually, however, once contracts have exchanged the parties can be confident that matters will be successfully completed on the agreed completion date.

The current crisis has introduced a great deal of uncertainty, however; there are very real risks that one or more transactions in a chain might be affected by a COVID-19-related problem, such as a seller having to self-isolate, removers being unavailable, or transfers of funds being delayed.

In such circumstances, every transaction will be delayed, with consequent costs, including additional legal fees for dealing with the service or receipt of a notice to complete, payment of penalty interest under the contract, and other consequential losses such as removal costs, storage and temporary accommodation.

At worst, transactions might fail to complete at all, risking the loss of a 10% deposit due to failing to complete within 10 working days of a notice to complete having been served, in addition to claims for damages for breach of contract.

It is also worth noting that, if sale and purchase transactions fail to complete, then mortgage advances will need to be returned, and brokers will not receive their arrangement fees from lenders.

WITHDRAWN OFFERS

Worse still, the current uncertainty over jobs raises another frightening prospect for anyone contemplating entering into a purchase with the help of a mortgage.

It has always been the case that lenders retain the right to withdraw their offers of mortgage finance if, for example, the borrower has overstated their earnings, or their circumstances have been subject to a change.

In more normal times this is a known and generally acceptable risk for borrowers to take when committing to an exchange of contracts.

The situation looks very different today. Buyers and sellers are rightly nervous when it comes to exchanging contracts for completion in a few weeks’ time in circumstances where there is significant risk that they, or anyone in the chain, might have their mortgage offer withdrawn.

Our experience of conveyancing during lockdown has shown that, by dealing with the transaction through a simultaneous exchange and completion, it is still possible to get through the process, and to do so in a way which minimises the parties’ risks and leaves none of the uncertainty that the period between exchange and completion usually creates.

In the future, at least while we are living in uncertain times, we are likely to see behavioural change among both buyers and sellers, with those that want to move having a much firmer commitment to a sale going ahead.

While it is true that if one party in a single transaction or chain changes their mind at the last minute then the whole arrangement still collapses under simultaneous completion, our experience over recent months is that this is less likely to happen.

Both simultaneous and deferred purchasing present shared issues; for example, if one party pulls out then unnecessary removal costs and other potential ancillary costs associated with the move could be incurred.

However, as mentioned earlier, the costs associated with the failure of a conventional exchange and completion are potentially far higher.

Plainly, the most appropriate conveyancing process will be dependent on a number of different factors, and will most likely evolve as the market does.

That said, in my opinion, the risks a simultaneous exchange and completion avoid, and the psychological advantages provided by a process that is completed in a single transaction, are currently far greater than the disadvantages attached to it.

I would therefore urge brokers to discuss that option with their clients, rather than leave the decision to the client’s lawyer, who most likely will opt for the status quo.